10 dividend stocks to ride out the bond squeeze

With bond valuations getting squeezed as the Federal Reserve keeps rates near zero, fixed-income yields have fallen under a considerable amount of pressure. Also, total returns for many corporate bonds risk not exceeding their coupon payments this year. So where should investors go hunting for yield outside of fixed income? Electric utilities, natural-gas-infrastructure companies, and real-estate investment trusts are good low-risk candidates, according to a recent report from Barclays. “Since QE2 began in November 2010, cyclical sector P/Es have contracted while defensive sector multiples have expanded,” Barclays wrote in the note. “In our view, this trend will persist until the Fed begins the normalization process, creating an accommodative environment for equity income.” Of the firm’s many suggestions, MarketWatch picked the 10 largest by market cap.

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1. Simon Property Group Inc.

As the world’s largest real-estate investment trust, or REIT, Simon Property
SPG, -1.08%
is focused on shopping malls. Barclays expects healthy growth from Simon’s current portfolio and its $1 billion in projects planned for 2013. Taking into account the stock’s compound annual growth rate, current dividend yield, and projected dividend growth, Barclays estimates a potential total annual return of up to 18% from Simon Property.

Kinder Morgan

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2. Kinder Morgan Inc.

The energy infrastructure company has strong cash flow derived from its business diversification and general partner holdings. Growth at Kinder Morgan
KMI, -2.50%
is supported by its $26 billion in expected capital expenditures over the next five years, Barclays said. The firm expects a risk-adjusted total return of 14.1% from Kinder Morgan with its current 3.9% dividend yield.

Duke Energy

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3. Duke Energy Corp.

As the largest U.S. electric power holding company, Duke
DUK, -0.71%
stands to turn in 4% to 6% earnings-per-share growth following its acquisition of Progress Energy in 2012, Barclays said. The firm also expects Duke to return trading at a 10% to 15% premium to the sector once it outlines long-term growth expectations at an analyst day in late February, and announces a new chief executive in the latter half of 2013. Barclays estimates a total annualize return of 10.6% for Duke.

National Grid

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4. National Grid PLC

With electricity and natural gas assets in the United Kingdom and the United States, National Grid
NGG, -0.82%NG., -1.90%
stands to gain from a more stable regulatory landscape following final decisions from U.K regulators and pending approval for settlements in New York and Rhode Island. With a current 5.7% dividend yield and dividend growth potential, Barclays estimates a potential total annual return of 20% or more for National Grid.

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5. Williams Cos.

Barclays expects an annualized total return of up to 23.9% from Williams
WMB, -3.71%
owing to its potential to grow its dividend by 20% through 2015. The pipeline company’s current dividend yield of 3.9% is about 100 basis points at a discount to peers, Barclays said.

Prologis

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6. Prologis Inc.

As an industrial REIT with holdings in the Americas, Europe and Asia, Barclays expects Prologis
PLD, -0.77%
to see above-average earnings growth from improving industrial fundamentals worldwide, as well as achieving portfolio repositioning and deleveraging goals outlined when it merged with rival AMB in 2011. Barclays estimates a potential total annual return of up to 16.5% for Prologis.

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7. Plains All American Pipeline LP

As the largest crude oil pipeline master limited partnership, Barclays estimates a return potential of 13.1% from Plains
PAA, -4.14%
with its 4.5% yield. Some $1.5 billion a year in capital expenditure is expected to drive expansion.

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8. Boston Properties Inc.

As an office REIT, one of Boston Properties’
BXP, -0.69%
best known holdings is the General Motors building in New York. The firm has choice holdings in New York, Boston, and San Francisco, and Barclays sees these office markets as remaining the strongest nationwide over the next few years, with potential upside from holdings in Washington D.C. if fiscal cliff issues are addressed in 2013. Barclays estimates a total annual return of up to 22% for Boston Properties.

Oneok
OKE, -2.32%
is positioned to raise its dividend by 65% to 70% out to 2015 as it seeks to bring into service some $6 billion in new projects. Barclays expects a total return potential of up to 19.6% for the natural-gas-liquids infrastructure company.

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10. Oneok Inc.

Oneok
US:OKE
is positioned to raise its dividend by 65% to 70% out to 2015 as it seeks to bring into service some $6 billion in new projects. Barclays expects a total return potential of up to 19.6% for the natural-gas-liquids infrastructure company.

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